Organizational Performance Part 46: Understanding Waste Reduction to Improve Company Performance | Operational Excellence Quick Hits

In today’s session, we’re going to talk about understanding variation reduction and how to achieve breakthrough improvement. And the mindset necessary to get breakthrough improvement in the organization. A lot of companies believe that the way to improve the system is to make all processes capable by reducing variation everywhere. So we have variation in processes. So the best way to approach it is to look at it from a system perspective and start reducing variability everywhere. So I want to challenge that assumption today.

If we look at capacity and we look at a system. When we have a balanced system, that means we have zero protective capacity in the system. That means all operations have the same capacity. So a lot of times in line balancing, or if we look at different operations, we reduce capacity in certain departments that are over producing to get the capacity balanced across the organization. But when we have a system that has balanced capacity, what happens is the variability in each operation negatively affects the downstream operation and ultimately negatively affects the system performance.

So we know that all processes have variation and all processes have different levels of variation. And so we start attacking the system by reducing variability in all these processes to make the system more effective. But there’s a better way to approach this situation.

And the way to approach this situation is to unbalance the capacity. So if we unbalance the capacity, what we do is we look at ways to increase capacity in different functions so that we have one resource that is our capacity constraint resource, or the flow to dictator or the tax setter or whatever you want to call it. But it’s the resource with the least amount of capacity in the value stream or in the system. And that resource dictates the flow of the system. And so what we want to do is we want to understand the variability in an unbalanced system. And which variability effects system performance and which variability doesn’t affect the system performance. So of course, on the capacity constrained resource variability on that resource or that operation will affect system performance. Variation in other operations may or may not affect the system performance.

How do we improve system performance instead of reducing variability everywhere we still know that flow is a primary means for improving company performance? To improve system performance, the most effective way is to create protective capacity to decouple processes from each other. So reduce the dependencies. So when we decouple, we specifically want to decouple the constraint or capacity constraint resource from the upstream processes. So the variability and the upstream processes don’t affect the capacity constraint resource.

Then in an unbalance system, the focus becomes one, reducing variability only on the capacity constraint resource. And two, reducing variability on the processes that are most likely candidates to disrupt the flow of the system or starve the CCR. A totally different way of managing the operation. In today’s lesson, what we’re learning is, don’t reduce variability everywhere, unveil the system and reduce variability where it’s most important to reduce variability.

In next week’s session, we’re going to look at productivity. And looking at what’s the difference between being busy and being productive. So a lot of people think that if people are busy, they’re being productive. And I’m going to challenge that mindset.